A Fast Economic Recharge That Will Never Happen

Somebody get the fuck-the-repugs tabasco they've been puting on their wheaties at the White House lately and pour it on Ben Bernanke's oatmeal. Time for the Fed to put the economy ahead of politics.

William Greider at The Nation:

Rome is burning while Congress fiddles. The president is out on the road trying to secure a second term, while the economy once again teeters on the brink of bad possibilities. The governors of the Federal Reserve Board seem to understand this better than most of Washington’s power hitters. But what can the Fed do? The central bank has already dispensed trillions to the financial system and pulled interest rates down to rock-bottom levels. Yet the economy doesn’t respond. Banks won’t lend, businesses won’t hire. Anxious consumers stopped buying, the order books are bare.

Miles Kimball, an imaginative economics professor at the University of Michigan, has stepped forward to propose an ingenious solution for the Fed’s dilemma. The government should create a “federal credit card” and send one to every adult in the nation, enabling each person to borrow $2,000 at a very low interest rate and not pay back any of the money until after the economy has fully recovered. The provocative kicker in Kimball’s proposal is that the Federal Reserve would itself provide the financing, not Congress or the president through the federal budget. And he argues that the central bank can do this with its unique power to create money.

A federal line of credit, Kimball suggests, could become a new, fast-acting channel for economic stimulus — more potent than the usual methods like tax rebates, and far less costly. That’s because consumers would not get any benefit from this government assistance unless they use the card — that is, borrow and spend — and do so before the government’s offer expires. After all, this is exactly what the economy needs. Why give the money in tax breaks for banks or businesses, which may not use it for the intended purpose? Why not deliver the aid to consumers, who will?

Kimball argues that this novel approach could deliver a strong, quick jolt to the stagnant economy, $400 billion or more. Yet it would add very little to the federal budget deficit, because the Federal Reserve operates under its own, independent balance sheet. Further, it’s not free money but a temporary loan, like the trillions in short-term loans the Federal Reserve gave the banking system at the height of the crisis.

Greider acknowledges that the Fed is too terrified of being accused of playing politics, too captured by Wall Street and too focused on combating non-existent inflation to consider this or any other stimulus measure before the election.

Yes, far better that the economy collapse, tens of millions of people suffer needlessly and the nation fall unto feudalism than the Fed do anything that might earn repug frowns.

Read the whole thing.